There are normal Currencies like the dollar, euro, pound which have physical paper form and are used for purchasing or selling things. All these currencies are issued and controlled by their countries or regulatory bodies of that countries, means all these are centralized currencies. But now the new concept has emerged and is becoming popular by every passing day, a concept called Bitcoin.

DEFINITION

Bitcoin is the type of digital currency or cryptocurrency used as an alternative to Normal Currencies like dollar or euro. It is the decentralized currency, means it is not issued or controlled by any government or regulatory body, and it is neither a physical coin nor a note, but it is an intangible digital asset stored in our mobiles or computers and used online.

It was the first digital currencydeveloped by Satoshi Nakamoto. Since it was released in 2009 as the first cryptocurrency, there have been number of other cryptocurrencies or digital currencies developed by different organizations like Likecoin, Ethereum, Dash, Zcash to name a few, and all these currencies inspired by the bitcoin, and they are collectively called as “altcoins” or alternative coins (means digital currencies other than bitcoin). Nevertheless, bitcoin still holds the 90% share of the market.

HOW IT WORKS

Bitcoin relies on blockchain technology which verifies the ownership of bitcoins by keeping the record of each transaction ever happened on bitcoins. The blockchain is a type of database system which works as a distributed ledger in which each new transaction done on the bitcoin is added by the miners as a new block in the blockchain. Now, each block consists of three parts or segments: data, hash value, and the hash value of previous block. Data consists of information about the sender, receiver and amount of coins transacted, the hash value is the unique identifier used to identify or access the block in the blockchain, and each block contains hash value of the previous block, which then makes the complete chain of block, that is why it is called the blockchain.

Miners are the individual persons who own the copy of the ledger and they add the record of each new transaction after verifying it and then update the ledger (blockchain) and that update is then synchronized on all computers in the network, so that all miners can see the update. Miners own powerful computer machines which solve mathematical problems to find a correct hash value which will connect the new block to the previous one, and when any person finds the correct hash value, he connects the new block to the previous one, and he gets new bitcoin in reward.

Any person can become the miner. It does not require to be associated with any company or organization, it only requires the powerful computer machines to solve the complex problems. There is a special mining hardware like ASIC (Applications-Specific Integrated Circuit) which performs tasks much faster than the normal computers.

As normal currencies are printedby the governments and all governments print a specific amount of currency notes every year. But bitcoin has a limit which was set in a sense that its value should always be increased and the limit is 21 million up to the year of 2140, means last bitcoin (21 millionth) will be mined or generated in the year of 2140 (after 120 years) and after that we will never see any new bitcoin. The limit has been set to avoid inflation.

BENEFITS OF USING BITCOIN

Bitcoin provides several benefits as compared to normal currencies and banking systems.

• Transactions with bitcoins require a much lower fee as compared to traditional banking systems
• Traditional banking systems take several days to transfer money, but Bitcoin transactions are done in minutes
• Bitcoins are stored in a digital wallet, which is a software exists in mobile or computer and contain private and public keys, means we do not require any bank account which can be frozen or hacked at any time
• There are no any arbitrary limits or prerequisites in bitcoin which we see in traditional banking institutions
• We can purchase books, games, servers and other stuff using bitcoins
• We can send bitcoins directly one-to-one and we do not require any third party or intermediary

HOW IS THE PRICE OF BITCOIN CALCULATED?

The value of the bitcoin depends on what people will agree on, means how much the seller is trying to sell it for and in how much the buyer is trying to buy it for. Since it was released in 2009, the value of bitcoin has fluctuated many times. It was started with 0 value, went to $0.08 in 2010 for 1 bitcoin, then $2 at the end of 2011, $13 in 2012, then it rises to $700 in 2014 and again falls to $400 in the same year. It went to the peak of $17000 for 1 bitcoin at the end of 2017.

IS IT BETTER TO INVEST IN BITCOINS? It depends on the individuals that either they invest in bitcoins and get some now, as it is hard to estimate that will it be a profitable investment or a complete loss. Nevertheless, bitcoin has got a tremendous amount of response from all over the world. It has been accepted in several countries as a reliable currency. Finally, Bitcoin has potential future as it is growing in popularity by every passing year.

Written by Alessandro Civati
For Lirax Blockchain & AI Platform

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